Coles supermarkets has rejected claims by South Coast dairy farmers that its cut-price home brand milk is threatening farmers' livelihoods.
The supermarket giant admits farm gate milk prices are expected to fall in the next 12 months in NSW, but argues this is directly due to some dairy processors losing supply contracts and reducing their requirements to process milk - not $1 milk retail pricing.
Jamberoo dairy farmer and Kiama councillor Mark Honey said last week his farm's income would be down more than $100,000 over the past two years and he believed that would be a common position across the industry.
Mr Honey said because the supermarkets had reduced the price of milk there was a consumer expectation that $1 a litre was now the price of milk.
However Coles said industry data showed that average farm gate milk prices had been relatively stable in the last two years since $1 per litre milk at Coles was announced and they remained close to peaks achieved in the last five years.
Coles managing director Ian McLeod said Coles was aware many dairy farmers were facing challenges because of falling global milk prices, a high dollar and rising input costs.
"That is why Coles fully funded the lower retail milk prices on Australia Day 2011 from its own profit margin, paid dairy processors more for their milk and inserted rise and fall clauses in contracts so that if farm gate prices rise, we pay them more for their milk."
Coles said farmer margins were down but this was directly due to lower prices from dairy processors as a result of losing supply contracts, drier conditions and higher feed costs for dairy cattle.
Jamberoo dairy farmer Lynne Strong said it was time Coles stopped "the spin doctoring" and paid fresh milk processors a fair price for their farmers' milk and provided them with at least three-year contracts so this security and fair return could flow down the supply chain to dairy farmers.
"This is a very complex issue and the Australian milk industry is very complex," Ms Strong said.
"We have states who supply the domestic milk market and states who supply the export market and there is a very dense web of connections and relationships between milk processors.
"Locally the $1-a-litre milk marketing strategy and short-term contracts on offer by supermarkets to supply private label/home brand milk is putting extreme pressure on domestic milk processors.
"This means processors cannot provide ... surety to farmers because every two years the major processors are competing for the supermarket home brand fresh milk supply contracts.
"While there is very little or no money to be made supplying home brand milk to supermarkets, these contracts determine how much shelf space they get for their brands and if they don't sell their brands they can't afford to pay their farmers a fair price."